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This Company Is a Lot Like American Express--Only Better

With a similar business and trading at a similar multiple to earnings, Synchrony Financial is like Amex without the headwinds, says Morningstar's Jim Sinegal.

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Jim Sinegal: We recently lowered our fair value for American Express (AXP), and the company's earnings this quarter illustrated a lot of the negative trends facing the company. First is the growing bargaining power of merchants. American Express lost its relationship with Costco (COST), prices are coming down across the board, and we're seeing a lot of other merchants very reluctant to pay the high fees that American Express has traditionally charged.

Second, we are seeing a proliferation of payment options. Whereas once people had cash, check, Visa (V), and MasterCard (MA), now there is Apple Pay, Google Pay, and there are private-label options like those offered by Target (TGT). That's a problem for American Express as it tries to maintain market share.

Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.